Prestige Pricing: Tricking the Consumer
Prestige pricing is a very interesting topic. For those of you who don’t know, prestige pricing is when you set a higher price for something to make the consumer think it’s better than it actually is.
For example, if I were to take a burger from McDonald’s, I would pay $2.00. If I took that same McDonald’s burger down to a fancy steakhouse like Ruth’s Chris, and rerap it, I could charge the consumer about $15.00 for that very same burger.
It’s an interesting concept that you will see in domaining. Take someone like Rick Latona. He owns plenty of two word domains. He can probably charge a consumer about $20,000 for a domain that I can get $8,000 or so for. Or take someone smaller, like Chef Patrick, who is well-known around the forums, well-respected, as well as one of my good friends. He can charge $100 for a domain I can charge $20 for.
Prestige pricing is all about tricking the consumer based off of the seller’s knowledge. This takes me back to the example about McDonald’s. Ruth’s Chris is this fancy restaurant, that a consumer thinks is the best of the best, psychologically, no matter how good the food actually is. It’s just a psychological basic. So they can charge much more than McDonald’s for the exact same burger.
Well, it’s the same concept in domaining. A seller thinks Rick Latona is the best of the best in the domain industry, so they will pay a lot more for a domain from him then they will from a smaller guy like myself.
Anyways, prestige pricing is something I learned this weekend, and I found it to be a very interesting topic, so I thought I should share. I would love to hear your comments!
Great article, very A.P. economics themed. One of the better ones here
I don’t agree with the premise of your post or the conclusion you drew from it. Ruth’s Chris is known as a top steak house because their food is really good. If the day they first opened their doors they charged $15 for a crap burger, they would have no repeat business and no reputation. Likewise, if I went in and got served a crap burger even after they had established a strong reputation, I wouldn’t go back. The burger wouldn’t magically taste better because I heard they had good food.
Likewise, Rick’s domains don’t look good because he has been in this business a long time and knows what he is doing. They ARE good… because he has developed impeccable instincts for this business. He sells domains for more money because he has better domains, not because he has a better reputation. He sells domains for more money because he has a good gut for determining the value of a domain, and he has a knack for negotiating and sticking to his guns. That is, after all, why he has the reputation.
If you two tried to sell the same exact domain, and he got more money for it, that is simply because he was not willing to sell for as low as you were. I doubt buyers are throwing 3x as much money at him just because he is Rick Latona. There is no substitute for skill and talent.
Appreciate the response Ross!
As for Domain Media, I totally see where you are coming from. The premise I am basing my article off of is debatable. I understand that. The reason I say people will pay more for a domain name from Rick Latona then from me is he is a HUGE name in the industry, so a user will trust him to sell him a good domain, a lot more then they would trust a smaller guy like me. Same goes with Ruth’s Chris. I understand the Ruth’s Chris/McDonald’s example was a lot more debatable then the basis of my article, so I understand your objection to that. I was just trying to get the point out to my viewers and get the whole point easily understood.
Make anymore sense to you? Hope that helps!
Good post. And good examples using the domainers to help explain.
It’s all about connections and persuasion skills. The burger/Latona example is a failure, in my opinion. The secret to bigger sales – other than having better domains (which means paying more $$$$ to get them in the first place) is to ASK for higher prices from potential buyers. If you don’t ask, you don’t get
Well, I (respectfully) disagree with Name Media, here is why:
The technique described here is not only about pricing, but making the prospect believe a story about what they are going to purchase. If that premium domain tells a story that is compelling enough for the end user/reseller it will sell! Same thing with a McDonald’s burger, it tells the story of it being cheap, when in reality you spend about the same amount of money buying a meal than you would at a restaurant.
If the fancy restaurant serves crappy burgers, but it has a compelling story of “status” or “expense” the people will most likely return there for those same reasons.
Then again, it all comes back to creating the correct marketing strategy for a domain. Here is what I do to create a story:
1. Make a nice logo for the domain: Invest $30 – $50 on a nice logo to bring out the potential in the name. Keep in mind most resellers see thousands of domains, having a logo will make it stand out.
2. Think of ways to develop the domain: If you are charging $20k for a name, adding your valuable opinion on how this premium domain can be utilized to recuperate that investment. Although sometimes the buyer will have their own ideas.
3. Invest in a press release: Again, it’s all about telling the story and reaching more people. Not only will you gain links from the PR websites, but you will appeal to your end buyer by using the keywords their business targets.
4. Develop the domain: If the domain is about “insurance leads”, why not invest $300 on a nice site that will capture business, produce residual income for you, and add even more value to the end user?
Keep in mind I’m not talking about crappy domains, but premium keywords that would sell for less, like Admin stated on the OP.
Anywho, great post!
Dan
DnUnderground, this is absolutely the case. If Angelina Jolie owned an ordinary dresser which she purchased for $500 and she chose to auction it off to eBay, how much do you think it would sell for? $1000? $2000? Probably closer to $10,000 if you’d ask me. Now, consider Ron James of NamePros. He might not be as famous worldwide as Ms. Jolie, but his capacity to sell a $30-reseller domain for $100 (I have seen this occur several times) is a microcosm of Ms. Jolie’s situation. When you purchase a domain from Ron, you’re also buy privilege to brag, “Wow, I just bought a name from THE Ron James!” There’s a certain satisfaction that acquiring the product of famous, trustworthy person’s mental processes entails. Same goes for intangible items famous people might offer. How much would you pay to spend an hour with Barack Obama?
I think I would actually be more likely to pay full asking price to an average domainer instead of Rick. Because he is such an experienced domainer and talented negotiator, I would be expecting to get the short end of the stick with him every time. Rick does not under-sell a domain. With you, I would feel like there was at least a slim chance I could give myself the upper hand and come out with a bargain. I understand what you’re saying and that is definitely possible for some people, just wanted to say how I see it.
Well, now that everyone else has been commenting a lot, I feel I need to put in my better two-cents.
I feel bot sides have compelling arguments here. For example: I think a McDonald’s Burger is much better than some burgers sell at more upper class restaurants. Just for fun
But really, we are comparing apples to oranges here. The domain name market itself is based a lot on speculation. If a domain is said to be premium by the experts, then yes, it is premium and deserves big money. However, this system is very, very flawed. Why?
Because the “experts” said that LQAL.com would be worth $xxx+. Now, some people are still pushing for the LLLL.com market to pump up, but, as of right now, experts made domainers believe that type of domain to be worth $xxx+ where now you’d be lucky to get $xxx. The main point is here, sometimes the experts appraise wrongly.
Moving on, if we take Rick Latona to be an expert, whatever he says is good, IS good. Many people take his word to be domain name law. There’s more to this case though, what he says is premium, other experts are saying is premium. Luckily, it is not a unilateral body governing over the domain name world, but multiple experts. To throw another loop into this, Rick Latona still can sway the market one way or another with his newsletter.
Knowing this, prestige pricing does take a huge effect in selling domains because they are based off speculation. There are no set prices for any domain, which makes selling even harder. Although Rick Latona doesn’t “trick the consumer” he still has the ability too, and unbeknown to us, may have already.
(For those of you who don’t know what I imply there is this: The market, just like LLLL.com’s, sways so easily, it may just be one whole scam which will eventually crash. Who knows
There is a great story about the guy who launched grey goose vodka – instead of charging a bit more than absolut (the most expensive mainstream vodka at the time) he said screw it – i’m going to charge twice as much. And it worked like a charm.
I disagree about Ruth’s Chris – their steaks are pretty good (not the best though). If they charged $40 for a crappy steak nobody would go.
But a domain isn’t vodka or a burger. It doesn’t have prestige when buying or owning it. No more than a few dozen people will ever know that it is a rick latona domain.
Rick sells all sorts of names, but he doesn’t sell crap names for $10,000. So yes, he has a better chance than you or I selling a name for $1,000 – but it’s not because the name is worth $200 and his name adds $800….